Answers
| a | |||
| Differential Analysis | |||
| Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2) | |||
| January 5 | |||
| Continue Fruit Cola (Alternative 1) | Discontinue Fruit Cola (Alternative 2) | Differential Effect on Income (Alternative 2) | |
| Revenues | 236000 | 0 | 236000 |
| Costs: | |||
| Variable cost of goods sold | -91800 | 0 | -91800 |
| Variable operating expenses | -112420 | 0 | -112420 |
| Fixed costs | -49780 | -49780 | 0 |
| Income (Loss) | -18000 | -49780 | 31780 |
| b | |||
| Yes, Fruit Cola be should be retained | |||
| If Fruit Cola is discontinued, net income will decrease by $31780 | |||
| Workings: | |||
| Variable cost of goods sold | =108000*(1-15%) | ||
| Variable operating expenses | =146000*(1-23%) | ||
| Fixed costs | =(108000*15%)+(146000*23%) | ||
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